simple strategy....but very profitable

Discussion in 'Trading' started by voltrader, Mar 26, 2002.

  1. trdrmac



    You bring up some good points, how would you or did you operationalize this? For instance after reading the first post I ran 2 scans of my tracking lists. One is IBD Friday's review, and the other is New Highs. The top performers were up over 100%, and the bottom down 50% or more. Now the IBD list has 224 names, so it is not practical to buy each name. So I would have to guess that I would have an equal selection of winners and losers. I would also guess that some of the winners broke trend before a big run, and some of the losers could have winners at one time.

    Just like trading in any other time frame I suppose.

    For the longer term I am starting to build back my portfolio, and would be interested in any input you have on trend following. For instance, within the past couple of months I have started buying some junk bond funds and some foreign bond funds, and a few flyers. Now, assuming they keep acting well I will keep them. For stocks however, it seems to me that in the sideways market (overlooking the trading rallies and declines), has made holding most stocks useless. The best idea would I can come up with at present is to take X dollars and buy say 5-10 names and kick out the losers and keep the winners.

    #21     Mar 27, 2002
  2. Pabst


    I'm not the best guy to comment on this. I grew up a scalper and even now off the floor I consider a 2 day position an "investment".
    But as someone who has seen the likes of Rich Dennis and Tudor Jones operate, those "5%" winning trades involve add on after add on. Case in point is Dennis in the 1985-1986 bull market in bond futures. He would start with his normal unit of 500 contracts and get chopped for days. Buy the days high, put em back out on a new swing low ect. Every once in a while he'd wind up with 500 that worked. Then he'd start the process higher, all over again. Work em in, work em out. After maybe a couple of months the market has rallied 10pts. from where he started and he has 2000 on.(meaning 2million a point) Now the market is short and ready to pop on any size buying and he's there supplying the noose. Bidding for 500 on every up tick, finally gets to a point where for the last month of the move he has 5000 on. T-Bonds rally 20 pts. in just over a month and he's up $100,000,000 on a trade that started out with him just testing the waters,losing $100,000 a few times before he could establish a position worth doubling up on.
    #22     Mar 27, 2002

  3. trdrmac:

    i scan roughly 500 stocks with the main qualifiers being adequate volume (at least 500K shares a day), adequate volatility, and some technical conditions I am looking for. i can do this fairly quickly because i don't need to rely on indicators or fundamentals to determine my picks, and i recognize that a lot of the movement I see will ultimately be from overall market direction or sector direction anyway. I hone down this potential 500 issue universe to a handful of best looking longs vs. best looking shorts for the moment, requiring the market to trigger me in w/ momentum (buy stop entries on longs, sell stop entries on shorts). I have a max number of longs/max number of shorts and rotate new issues in witha preset plan. In bull markets I end up overbalanced the long way, in bear markets I overbalance the short way, and in chop markets I go AC/DC with the swings. I use volatility based stops close enough to keep it tight but far enough away that I am not stopped out on chop, and the nature of my picks also helps me from getting whipsawed. To boil it down to essentials I basically buy weakness within strength and sell strength within weakness but require momentum confirmation for entry. I have exposure on both sides most of the time as a hedge, the majority of the trades end up netting out against each other as small wins and small losses, and I profit from the heavy movers that go strongly in my favor. I'm kind of like the patient ball player who is hustling his butt off, biding his time with singles and bunts and pop flies, with the goal being to make sure he is there for all those juicy fastballs right down the middle.

    Playing both directions and cutting losers off at the knees can keep me from making as much as the guy who is committed to one direction only, but it also protects me from getting hammered, and I know I can profit in any environment, even slop n' chop (though slop n' chop will always be harder).

    As far as the pyramiding observation goes that's pretty much right on, I don't pyramid unless I am already nicely banked for the month, but I can paraphrase Stan Druckenmiller:

    "The way to make big returns is to grind it out until you are up 30% or 40% and then, if you have conviction, go for the jugular."

    Unlike Dennis who goes for the knockout every time, I like to be playing with winnings before I turn up the heat.
    #23     Mar 27, 2002
  4. Sorry Darkhorse....but I'm in a fun let me ask you to supply a name of one, just one person and their "system" that is controlling all this money and making all this money. For example, I know Blair Hull's people control far more money than that, and they have been working on "systems" for decades...and they cannot turn the money over to a system.

    Not trying to be contentious, but I have a pretty good view of all the markets, not just "prop trading" as you seem to think. Give me a name, and I'll be happy to call him and find out how their system works, and post it here on the board. I'm not saying you're wrong, I just want to see it.

    #24     Mar 27, 2002

  5. Okay: Bill Dunn, of Dunn Capital.

    Go get 'em tiger.
    #25     Mar 27, 2002
  6. trdrmac


    Sitting in a tree.. Just kidding.

    That was a good story of Dennis, seems to me that personality would play a big part of this. I would drive myself insane doing what he did. The last interview that I read with Dennis, he had lost a good deal of his stake, is he still around or did he move to vendorland?

    Thanks for the response, I have been trying to work through a few ideas to beef up my returns and not miss so many opportunities. I find my best ideas are ones that I can walk away from for a while and feel comfortable. Usually I do this by taking on several stocks or a basket like ishares or holders. They work nicely for the range bound market.

    #26     Mar 27, 2002
  7. Don - I thought Blairs guys and Timberhill were pretty much completely mechanical.

    Interesting that everyone put down the old woman...I threw it out to test the waters here. Magna - She wasn't putting all her money in to one stock at a time just had a 10% gain/loss strategy for each stock that she bought.

    Also why not 6/10....if you can only get 5/10 or less well the boards should give up talking about entry strategy... and just pick up a coin for entry and then learn to manage the trade. Van Tharp talks about a similar thing in his seminars

    Nevertheless, my guess is that there are alot of people on this board losing a lot of cash., and who have blown out. Yet this old woman with her stupid strategy -even if she put 100% of her funds in one stock each time would need 23 losing trades on a trot lose 90% of her cash....and she would never blow out.
    #27     Mar 27, 2002
  8. Pabst


    trdrmac: Last I heard about a year ago Kenmark had shut down Dennis's last fund with it down about 50% on the year. He's a guy who surely should have retired in 1986.
    #28     Mar 27, 2002
  9. trdrmac


    In one of Richard Wycoff's books he mentions taking on a basket of stocks, selling a position as soon as it shows a loss and then letting the winners run. That is what caught my eye about the thread, did not read the story of the lady. And in a bull market you can pay for a lot of mistakes by riding a good winner. What is hard though in this market is that leadership changes pretty quickly, and I can't think of too many situations where I sold something for a profit and ended up kicking myself.

    As an example, one thing I have had some success with and am trying to build on is to take small positions in several stocks. Recently RAS, RVT, FF and CPV as an example. CPV I sold for a loss, and the other three I sold for a small gain. Currently the winners are still above my sell price, so it would have been possible to hold those positions. But then I look at something like NOBL where I sold at a small gain, but would now be holding a loss if I let my profits run. And I think, although I am a little unorganized in my tracking that i would have fared worse over the past year and a half by pressing for too much profit.
    #29     Mar 27, 2002

  10. I didn't put the old lady down, she might be Warren Buffett in disguise for all I know.

    I did put YOU down, in a fun way, for your question "if i can't get 60% how much do you think i can get." That question is completely unanswerable by anyone besides YOU, which makes it a pointless question. You might as well ask Magna how many girls he thinks you can pick up at the bar tonight.

    #30     Mar 27, 2002